Or maybe the contractor has some discounts somewhere.Your biggest 2 hurdles will be permits and the mortgage company. 

I don't think the owner ever got a permit to do this addition.  

You'd want to have everything separated, with permits.

The section 121 exclusion also permits the first $250k ($500k for married couples filing jointly) of gain on the sale of your primary residence to be excluded from your gross income.

You could set this up and then sell it for a small premium as an in-place "system" but it may be 50/50 as to whether the buyer will value the process you have OR prefer having in place long-term tenants with locked-in leases.One note, if you are going the business route and selling it as such, make sure to go legit on taxes, fees and permits.  

This would include permits, utility disconnection, debris removal, and site prep basically graded for the foundation crew to start pouring a new basement 

One good idea is to find the escrow/title agent that specializes in new construction as they will know who is who in your market.After finding the finish value (what a home will sell for), you want to ideally be at 20% to 25% of that by the time you finish the preliminary plat application and finish the permitting process.

He charged us for a permit as well as the work performed.He finished all the work and received the complete payment but did not finish out the permit. 

Permitting is taking at least 4 months for a clean file from what I hear.

The rooming house shares bathrooms and doesn't have any kitchens (no open flames permitted).